There was, across much of the media, and politics, widespread condemnation in recent days of the news that a global property firm, Round Hill Capital, was set to purchase most of the homes in a new 170-home development in Kildare.
The frustration amongst a lot of people on hearing this news was perfectly understandable, if not, as we will shortly see, necessarily correct: The country has a housing crisis, thousands of young Irish people can’t afford to get on the property ladder, and there is a widely agreed consensus that there is a shortage of supply. Fianna Fáil MEP Billy Kellegher was amongst those in political-land leading the charge at the sight of a big multinational fund coming in and, as he’d tell it, swiping perfectly good homes from under the noses of hopeful Irish families:
If something isn’t done to tip the balance in favour of home ownership,and disadvantage Investment Funds, we will be tenants again , like we were a hundred yrs ago. The only difference is our landlords will be investment funds based in London or New York. https://t.co/MDvr7fiRho
— Billy Kelleher MEP (@BillyKelleherEU) May 2, 2021
And he wasn’t alone. Even people normally friendly to the idea of free market capitalism, like Irish Independent columnist Jason O’Mahony, were sounding the alarm:
It’s pretty hard to defend investment funds hoovering up housing when there is such a domestic demand.
— Jason O’Mahony🇮🇪🇪🇺🇺🇳🖖 (@jasonomahony) May 3, 2021
One man, though, stood out from the crowd, and his perspective is interesting. We’ll share it here so that you can have the counter-argument, whether you agree with it or not, to all the outrage.
Philip O’Sullivan presently works in investor relations with Bank of Ireland, but before that, spent seven years as Chief Economist with Investec. He looked at the data, and has come to the conclusion that large institutional investors purchasing properties wholesale…… might not be the worst thing in the world:
(2/n) Who owns buy to let property in Ireland? Revenue Commissioners’ data on local property tax returns indicate that the vast majority is owned by small scale (1&2 unit) landlords pic.twitter.com/s9JnMVZWjF
— Philip O'Sullivan (@pdosullivan) May 3, 2021
(4/n) The effective elimination of negative equity across Ireland means that thousands of accidental landlords are exiting the market, as reflected in Residential Tenancies Board data. pic.twitter.com/MqVlXQIL0v
— Philip O'Sullivan (@pdosullivan) May 3, 2021
(6/n) If small scale landlords are net sellers, who is going to step up to the plate? Local authorities built less than 2,300 units in 2019 (pre-Covid). This is less than a tenth of new household formation in Ireland (generally held to be 35,000 units per annum) pic.twitter.com/QWBGERVe5b
— Philip O'Sullivan (@pdosullivan) May 3, 2021
(8/8) To this end, I suggest that if small scale landlords are exiting the rental market and if the State isn’t able to bridge the gap, barring institutional capital from investing in building rental units is only going to worsen the supply crisis in the rental market.
— Philip O'Sullivan (@pdosullivan) May 3, 2021
What O’Sullivan is saying here is straightforward enough: In any property market, there are two kinds of customer: those who want to rent, and those who want to buy. For a home to come on the rental market, someone must first build it, and then another person must buy it for the purpose of renting it out. Traditionally, landlords have come from the middle class of society: Individuals who, for whatever reason, ended up with two homes, and rented one of them out.
The problem, O’Sullivan argues, is that those people are fleeing the rental market. He does not offer many reasons for why that might be, but it is certainly arguable that he left one out, namely that the raft of tenant-friendly legislation introduced by Irish Governments over the past decade has made privately renting out a home a much less attractive proposition for small landlords. Notice periods are longer, tenants rights have been massively strengthened, and smaller landlords may be finding that renting out a property has become a much more stressful and legally precarious business than it was a decade ago.
Somebody, O’Sullivan argues, must fill that gap. And it has got to be either the state, or large institutional investors.
O’Sullivan does not expressly make the case against the state being the primary provider of rental accommodation, but that would be such a bad idea that he probably feels it unnecessary to articulate the reasons why. If you are wondering though, then consider that the state would almost certainly allocate all housing based on social need, prioritising those who most deserve a home, according to whatever criteria might win votes. Of course, there is an important place for that kind of consideration in the housing market, but adopting it for the majority of rental housing would exclude a whole class of people who want to rent at a fair market value, but who the state does not consider to be sufficiently deprived to prioritise. You would be cutting tens of thousands of people out of the rental market altogether, is the point. Any functioning housing market needs a large private rental sector, and if nobody else is providing it, well. What else are large housing funds for?
The real issue in the property market, of course, is supply. Until such time as we start building enough new homes to drive the price down, competition between private rental investors, and people who want to buy their own homes, will continue.